Written Commentary
BONDS:
A major private survey of consumer sentiment and February US pending home sales were also lower than expected. The Fed’s Williams said that the Fed is watching inflation expectations very closely and if it is appropriate to hike rates by 50 basis points, he will do that. Citigroup forecast 50 basis point rate hikes at the next 4 FOMC meetings, which rattled market sentiment later in the day. Treasuries fell back on the defensive and reached new lows for the move before closing last Friday’s trading session with heavy losses. While Treasury bond prices forged lower lows for the move in the early action this week, that breakout down was reversed, and bonds were tracking back in positive territory.
CURRENCIES:
The Dollar bounced back from early pressure to return to unchanged levels by the close of last Friday’s trading. Hawkish Fed commentary continues to provide the Dollar with support, and has more than offset lukewarm readings for pending home sales and consumer sentiment. With at least two foreign central banks forced to move into the market to stifle surging bond yields, it is clear inflation fears are beginning to get the upper hand on deflation/recession fears.
With Bank of Japan intervention to hold bond yields down, the sharp washout in the Japanese Yen was not surprising. Apparently, the Bank of Japan acted after Japanese bond yields rose above targeted levels but the trade saw that as a sign that the Bank of Japan was not in control of its markets. Like other non-dollar currencies, the Swiss franc under fresh pressure. Apparently, the trade sees the US as a steady rising rate/yield destination at the same time the Yen, Swiss, and euro face regional geopolitical threats which need lower rates to keep forward economic motion in place.
STOCKS:
Global markets finished last week volatile trading with choppy and two-sided action during Friday’s trading session. News that the US will divert LNG supplies to Europe to offset lost Russian supply provided an early boost to global risk sentiment. However, there have been few signs that Ukraine and Russia will reach a ceasefire soon. Global equity markets early this week were mixed with general weakness seen in Asia and Pacific Rim stocks, with minimal positive action seen throughout the rest of the world. Despite seeing general weakness in global equity markets overnight, a 4-day shutdown of Shanghai for Covid testing, periodic fear of recession and a schedule of rising interest rates the equity market has its share of negative forces but that has not discouraged buyers for the last several weeks.
While the upside breakout in the June S&P contract was minimal in scope, the higher high pattern was extended as the market continues to show its ability to absorb/deflect negative fundamental developments.
The charts in the Dow look a little messy as the market last week was unable to hold an upside breakout and prices did not made a higher high as was seen in the S&P contract.
GOLD, SILVER & PLATINUM:
From a fundamental perspective, the gold and silver markets continue to see modest investment and flight to quality demand, but also some buying interest off the potential for inflation buying. Obviously, the war in Ukraine continues to provide a steady flow of flight to quality buying interest, but another layer of sanctions on Russia likely infuriates the Russian leader and that could lead to more volatile actions from Russia and more volatility in gold and silver. However, the latest sanctions involve efforts to isolate Russia from selling gold to the world market, and for some that moderates a fear of sudden physical supply wave of availability in the world bullion market. Estimates on amount of Russian gold reserves range from $140 billion to as high as $220 billion. Certainly, Russia will find some outlet for sales to buyers willing to buck sanctions but tightening restrictions should reduce the net amount of gold flowing from Russia.
Obviously, the charts in the palladium market are severely damaged with last Friday’s major downside failure. The palladium market was knocked sharply downward last Friday by UBS suggestions that Russian supplies from Nornickel were being redirected which could mean some supply is working its way to the world market.
COPPER:
With a 3-day low in copper at the end of last week partially undermining the charts, sentiment in the marketplace oscillating between recession, inflation and Chinese demand fears, volatility looks to extend. However, we see the bear camp with an edge especially with the surge in Chinese infections that began in mid-February continuing its pace well above the daily rates seen since the end of the initial flare in infections at the beginning of the pandemic. We do note that from the March peak in Chinese infections they have come down in the last week.
ENERGY COMPLEX:
With reports of fresh peace talks and the Ukrainian Army stalling the Russian advance for weeks, the potential for some type of cease-fire is improved. Holding back energy markets to start the trading week is fresh peace talks, the closure of the Shanghai port, a modest rise in Cushing, Oklahoma crude oil stocks last week, and a mostly level weekly US crude oil production figure.
Like the gasoline market, the diesel market failed aggressively on Friday but still managed to forge a recovery of $0.11 into the close. However, the last COT spec and fund long positioning reading in ULSD reached the lowest level since November 2020 thereby reducing stop loss selling potential and increasing the prospect of stop loss buying.
While Russian national oil company officials on Sunday indicated that gas flow via the Ukraine pipeline continues, the sharp range up breakout extension in May natural gas last Friday gives the bull camp an edge from a technical perspective to start the new week. Despite Russia claiming gas continues to flow from Russia through the Ukraine, there are reports this morning that Gazprom does not plan any spot sales this week and that firms the price outlook to start the new trading week
BEANS:
Grain markets and energy markets are under heavy selling pressure at the start this week, with talk that officials in Russia and Ukraine are due to begin negotiations for a potential cease-fire with negotiating teams meeting in Turkey this week. May soybeans closed moderately higher on the session Friday and well up from the early lows. The market experience choppy and two-sided trade and managed to recover 25 1/2 cents off of the lows into the close. A turn from lower to higher in the energy markets helped support a bounce in soybean oil while meal closed slightly lower on the session.
Canola in North America also held near an all-time high, and Chicago soybean oil is up about 2% this week. Palm oil jumped 1.5% on Friday with the market up 7.1% this week. Ukraine may only plant half a normal crop for sunflower this year.
CORN:
July corn closed moderately higher on the session late Friday after the early break to the lowest level since March 22. The market managed to close 22 1/4 cents higher on the week. With the potential sharp loss in corn production from Ukraine and a much smaller wheat crop out of China, China corn usage is likely to be higher this year and world stocks tighter. Traders are hopeful that negotiations with Ukraine and Russia this week in Turkey might lead to a cease-fire and this is a short-term negative force. December corn also closed higher on the session Friday after posting contract highs on Wednesday. December corn closed 23 1/2 cents higher for the week.
Driven by production outages and tight global supply, Tampa ammonia surged to a record high $1,625 a metric tonne for April, up a full $490 from the previous record high of $1,135 a metric tonne in March and February. Ammonia prices jumped in Europe, as did spring ammonia pricing in the Pacific Northwest and western Canada. Urea prices continued to climb at NOLA and inland, and a big pricing jump is expected in India’s next urea tender due to the absence of Chinese and Russian supply in the market.
WHEAT:
Traders are hopeful that face-to-face talks between Russia and Ukraine will lead to a path to a peaceful resolution soon. The wheat market closed moderately higher on the session last Friday as shallow support managed to hold, and the market faces tightening supply of exportable surplus ahead. The market has experienced mostly choppy consolidation type trade since March 11. May wheat managed to close 65 1/2 cents higher on the week. Milling wheat futures in Europe closed 1.3% higher, and up 5.4% for the week. Given the potential tightness ahead, commercial and users are likely to remain buyers on any setbacks.
With Ukraine and Russia wheat a huge portion of the world export market, and the war dragging on for more than a month, end users around the world are getting nervous and this should provide underlying support. With the Russia-Ukraine war in its fifth week, urea and phosphate keep climbing in New Orleans (NOLA), Brazil, Europe and the Middle East. Tampa ammonia closed at a record $1,625 a metric tonne (mt) for April, up 43% from March. Potash prices jumped in NOLA and Brazil to almost 2x last month’s Chinese annual contract. Egypt is in talks with Argentina, India, France in the US for wheat imports. Officials indicate they are in no hurry but the country is looking for alternatives to Russia and Ukrainian wheat.
HOGS:
June hogs closed sharply higher on the session Friday and into new contract highs as traders see seasonally strong pork values as a reason to suspect higher cash markets over the near term. The lean index rallied again Friday, and traders remain concerned with a strong inflationary tilt to most agricultural markets. The CME Lean Hog Index as of March 23 was $101.50, up from $101.21 the previous session and up from $100.77 a week prior. This leaves June hogs trading at a premium of 24.35 to the cash market versus a 5-year average premium of 12.60. In other words, if June hogs were following the five-year average basis, the market would be trading down at 114.10. The market is pricing in a much stronger than normal cash market rally over the near term.
CATTLE:
For the Cattle on Feed report released after the close, the USDA pegged placements for the month of February at 9.3% above last year as compared with trade expectations for placements near 6.5% above last year with expectations ranging from +4.5% to +9.8%. This is bearish and near the high end of estimates. Marketings for February came in at 4.9% above last year from expectations for 3.4% above last year (range -1.1% to +4.5%). This is supportive for the cash market as more cattle moved off of feedlots than traders expected. As a result, Cattle-on-Feed supply as of March 1st came in at 1.4% from expectations for 1.6% above last year with a range of +0.8% to +5.9%. The USDA report news was neutral for April and a bit bearish for the June contract.
COCOA:
Cocoa prices have seen 4 rallies and 3 pullbacks of more than 200 points in size since the start of this year, but will begin this week with only a 9 point gain for the first quarter. With demand uncertainly continuing to weigh on market sentiment, cocoa prices are likely to lose further ground early this week. May cocoa were unable to shake early pressure and remained on the defensive for most of the day as they finished Friday’s trading session with a moderate loss. For the week, however, May cocoa finished with a gain of 25 points (up 1.0%) which was only the second positive weekly result over the past 6 weeks. Wet weather over West African growing areas has weighed on cocoa prices as that should benefit their upcoming mid-crop production.
COFFEE:
In addition to La Nina, Brazil’s Arabica coffee growers had to deal with frost events last July that are expected to affect production for the 2022/23 and 2023/24 seasons. Recent strength in the Brazilian currency should also keep coffee prices remain fairly well supported on near-term pullbacks. May coffee was able to rebound from a 1-week low to finish Friday’s trading session at unchanged levels. For the week, May coffee finished with a gain of 1.80 cents (up 0.8%) which broke a 5-week losing streak. The Brazilian currency reached a new 2-year high which provided carryover support to the coffee market.
COTTON:
May cotton closed limit-up on Friday and up sharply at the start of this week. Strong demand and a long-term drought in Texas have raised concerns about supply. Traders are citing drought concerns in Texas as a main driver for the recent rally, as well as strong demand. The weekly US drought monitor on Thursday maps showed slight reductions in drought intensity for Oklahoma and the Texas Panhandle, but not so in the unirrigated regions of west Texas, where conditions worsened. The latest 6-10 day forecast has normal to above normal chances of rain in Oklahoma and in the Texas Panhandle, with conditions changing to normal and then below normal further south, so it does not look like there is much chance for improvement in west Texas. The 8-14-day is above normal precipitation.
SUGAR:
A stronger Brazilian currency has eased pressure on Center-South mills to process cane into sugar, which is exported and paid-for in foreign currencies. La Nina negatively impacted the 2021/22 Center-South cane crop, and should reduce sugar yields for the 2022/23 crop which will begin harvesting next month. May sugar was able to build onto early support as it reached a 2 1/2 week high before finishing Friday’s trading session with a sizable gain. For the week, May sugar finished with a gain of 68 ticks (up 3.6%) which broke a 2-week losing streak.
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